Ron Ritter, President of On Point, LLC
The Shipbuilders Council of America (SCA) held their quarterly winter membership meeting again this year at the Biltmore Hotel in Coral Gables, Florida on February 4-5, 2015.
SCA, located in Washington, DC, is VSRA’s national trade association partner representing United States shipbuilders, ship repairers, and the shipyard supplier base. SCA’s team of issue and industry experts advocate on behalf of the industry before the Congress and the Executive Branch of the Federal Government as well as provide SCA members with in-depth analysis on regulations, legislation and budgets impacting the domestic shipbuilding and ship repair industry. VSRA and many of the Association’s member companies are active members of SCA. VSRA President Bill Crow and several executives from VSRA member companies attended the winter meeting.
The meeting began on the afternoon of February 4th with an Industry Partners Committee meeting during which specific issues involving and confronting the supplier base of companies were discussed. These issues included the Navy customer’s move to fixed price prime contracts. Further discussions included the impact budget cuts, including sequestration, will continue to have on supplier viability under government contracts.
On February 5th, the meeting continued in the morning with a Commercial Shipbuilding Panel consisting of senior executives from shipyards involved in domestic, commercial shipbuilding operations. The discussions included cost differentials between domestic and foreign shipyards that exacerbate the ability of domestic shipyards to be awarded foreign, commercial shipbuilding contracts. These differentials include the extra costs associated with international trade requirements (International Trade in Arms Regulations [ITAR] and Special Security Agreements [SSAs]), costs associated with doing both government and commercial work (25-30% increased costs due to Government requirements), and the fact that commercial work is goal driven while Government work is cost driven. A significant part of the discussion concerned the Jones Act and its importance to the viability of the domestic shipyards, their suppliers, and the continuing threat for the law’s rescission.
A Government Shipbuilding and Repair Panel followed which included senior executives from shipyards that accomplish predominantly government ship construction and maintenance. The discussion made clear from the outset that commercial work in addition to Government work is crucial for remaining in business. Further, the timing of the cash flow under Government contracts is crucial – that even with “full” funding for Navy ship maintenance, the lack of a definitive contract at the start of availability greatly impacts a company’s cash flow. This situation was highlighted as being exacerbated by experiencing 30-50% growth during an availability which impacts the timing of establishing a firm schedule and getting money timely put in place for the contract. The panel members also discussed inconsistency in that the government wants readiness plus cost and schedule control while the process of utilizing single award fixed price contracts for repair and maintenance is not congruent with achieving these goals. The panel also discussed the impact of the looming need to replace the ballistic missile submarine force. If this were to be directly funded out of the SCN (Shipbuilding) budget, 30-35 new construction surface ships in the out years would have to be canceled to pay for it. Congress has recognized this dilemma and has created a separate budget line for this program but has not yet provided any funding.
The final panel of the meeting was the Vessel Owner/Operator Panel that consisted of senior executives from companies that own and operate commercial vessels throughout the United States. Much of the discussion revolved around the current low cost of a barrel of oil and the impact this has had on owners/operators making investments in new hulls. The Jones Act and its importance to the commercial shipping industry in the United States was also a topic for the panel.
The two day meeting offered a wealth of current information on government and commercial shipbuilding and repair in the United States as well as the opportunity for the attendees to network with other members. While many of the discussions were sobering, attendees also voiced their optimism for the future, and our industry’s ability to “roll with the punches”, and remain a vital element of our nation’s economy and security.
About the Author
Ron Ritter is the President of On Point, LLC, a business consulting company with a concentration on Government contracting and procurement policies, business organizational development, and mergers and acquisitions.
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